New start asset finance and factoring facility agreed for new start direct mail business

Very brave I hear you all shout.  A new start business in the current economic climate. Well with the right type of funding support greatly increases the chance of survival. It is a well known myth that businesses don’t go bust because they don’t make money but because they run out of money. How many times have we seen many businesses purchase equipment for cash and then at a later date try and refinance the kit because they have run out of money. We say time and time again that it is far easier organising the finance on the outset rather than trying to do it retrospectively.

Under the right circumstances it is always possible to organise hire purchase and leasing for a new start business. Allot obviously depends on the type of equipment and the security that it offers. Traditional assets with good residual values always provides better security than high tech equipment and are easier to finance. In addition the people behind the business are just as important and your personal circumstances will be taken into consideration.

Once you are  up and running it is important that your business has adequate cash flow. Overdrafts are hard to come by for new start businesses. A factoring facility providing cash against unpaid invoices will provide a valuable working capital and a life line. In choosing your factoring company beware not all factoring companies are the same and some are better at handling new start businesses than others. Much will depend on the nature of your business , the quality of the debtor book and your geographic location.

It is now possible for recruitment companies to get a full payroll services that works in conjunction with a factoring facility. The following provides a recent case study whereby we were able to add value to a recruitment company to obtain the most appropriate funding.

Spend less time chasing payment and more time chasing business. A temporary recruitment company needing working capital to manage the gap between paying staff and receiving payments from its clients. XL Factoring sourced a factoring facility that provided 100% funding against unpaid invoices.

Not only did the facility provide working capital but it also provided credit control and payroll services. The credit control provided a full invoice and collection service whereby the customer only had to provide time sheets leaving the finance company to prepare invoices, monitor and chase payments. The payroll service handled the calculation of wages, generation of wages slips payments of NI and PAYE as well as year end payroll, sick pay and maternity records.

XL Business Finance has been helping businesses for over 10 years provide the most appropriate funding solution. Factoring is still a fast growing funding area of finance and in our opinion can be obtained via much better alternatives to the high street banks.

Trade finance provides the ability for a business to purchase wholesale goods on credit awaiting sale of the goods and therefore payment from the end user. There are several  types of trade finance and this article tries to explain the differences which should help you decide which product or type of business is best for your business.

Firstly traditional high street banks provide trade finance based on the strength and performance of the business. We call this balance sheet lending and is based purely on the profitability and track record of your business It is more often than not nothing to do with the value of the goods you are purchasing and the security that they offer.

Secondly certain factoring and invoice discounting companies provide trade finance facilities on the back of an invoice finance facility however the goods in this instance must be pre sold. For example if you were inmporting Plasma TVs from China and you had an order from Costco for example it might be possible to obtain a complete funding solution. The factoring company will provide you with an import facility to purchase the TVs. On delivery of the TVs to cost and on raising an invoice a factoring facility will provide a further funding facility until Costco pay within the terms of the invoice. As factoring will only fund 80% of the end invoice the mark up on the imported goods must be at least 20% otherwise the invoice finance facility will not repay the trade facility.

Many construction companies are prevented from obtaining traditional bank and invoice finance due to the contractual nature of their work. Mention contracts to 99% of the the UKs based factoring and invoice discounting companies and they will run a mile.

Banks may provide overdraft facilities based on the strength of the business and the available security. Traditionally banks are secure overdraft borrowings  against bricks and mortar. Therefore the size of any available facility is limited by the value of the available security. More often than not this is not enough for a construction finance to obtain adequate working capital.

The good news is that there are a couple of of bespoke funding facilities that provide funding against contractual debts. The products vary from funder to funder and the level of funding available depends on the nature of your business and the the contracts that you have in place. Funding can be approved on  application rather than approved application depending upon the finance company involved. Some of the finance companies even have their own in house quantative surveyors to make sure that the amount of the application is realistic in terms of the work undertaken to date. The percentage of the prepayment will again vary depending on the nature of the business and the contracts. Whilst 80% funding is not realist on average funding between 50-60% of the outstanding debtor book is more realistic.

The answer ( as with anything ) is MAYBE! Stocking Finance traditionally is an add on to a factoring or invoice discounting facility. It is sometimes possible to obtain funding in the form of a stand alone facility from an independent trade finance company and of course for the right sort of customer it is possible to obtain funding via your own bank. The following article will hopefully give you an idea as to where your business sits in terms of funding options.

Traditional bank funding as with most facilities is provided for own bank customers and is based on the trading performance of the business. A business that has been trading for at least three years, is extremely profitable, has a strong balance sheet and possible has tangible security will have a good chance obtaining funding from the high street banks. As with any finance product not all banks will offer stocking facilities and the product will vary from bank to bank. A good independent finance broker will be able to point you in the right direction.

Stocking on the back of a factoring or invoice discounting facility is slightly different. A business that is buying high value goods which can be easily disposed off maybe able to obtain funding irrelevant as to their trading history. For example non perishable items such as TVs which are being imported for a third of what they are being sold for will be more easily fundable than frozen fish for example. Whilst all factoring and invoice companies offer stocking facilities there are only a couple that offer a true revolving stocking facility. Certain funders offer an increase in facility to provide funding up to a 100% of the debtor book however this is done so on a short term basis. This overpayment secured against stock will be repaid back over a 12 month period.

There are many types of cash flow loans available to commercial businesses however we thought it might be worth explaining the different options. A cash flow loan in the traditional sense is a loan from a bank based on the performance of the business. Rather than securing the loan against bricks and mortar a multiple of the profitability is lent to the customer. These types of loans reached their peak in the run up to the credit crunch however are only starting to make somewhat of a recovery.

Whilst factoring , invoice discounting and even bank overdrafts are a form of cash flow loan they are different in that they are secured by other means. Factoring and invoice discounting facilities are secured against the debtor book and overdrafts are more often than not secured against bricks and mortar and even personal guarantees. Obviously it is possible to obtain a bank overdraft without security however you will probably know only token overdrafts are available from most banks without the benefit of tangible security

Cash flow lending was very prevalent in the acquisitions and mergers market  where significant sums were required to purchase a profitable business however there was very little security in terms of  property, findable debtor book or plant and machinery. A traditional asset based lender will lend cash against some all all of these tangible assets.

As with any financial institution the parameters for cash flow lending will vary greatly. An experienced commercial finance broker will have their finger on the pulse and will be able to help you find the most appropriate finance company. Don’t get too excited because we believe that this is still the most difficult area for funding and it will take time before the banks fully regain their confidence in this sector

Chad Monsirrims continues to look for a serial number following a refinance package and provision of a new factoring facility for a Manchester based print company

A Manchester print finance company needed to restructure their finances following an accumulation of VAT and PAYE arrears totalling approx £35k. Their existing Komri printing press had only 18 months to go with their existing funder. XL Business finance was able to refinance the machine and provide enough money to repay the existing leasing company , pay the VAT and PAYE arrears and also provide a surplus for additional working capital. Happy days.

In addition the business switched to a more flexible factoring company to provide additional working capital. The printers existing bank were severely restricting cash flow due to a difficult trading period, hence the crown arrears. A change in factoring company and the refinance of the existing press gave the business a new lease of life.

At one point the company was considering injecting personal cash secured against the press. Whilst this seems a good idea , obtaining title in a refinance situation can present many pitfalls. If the documentation was not completed correctly it may be possible that they could be accused of selling the press under preferential terms resulting in the transaction being null and void. It would also been imperititive that the customer got the right supporting documentation. If you do not get debenture waivers , proof of title etc it may be possible that a transaction be deemed null and void in the event of an insolvency. A specialist refinance company ensures that all this is correctly boxed off and that there can be no repercussions down the line.

Factoring is simply the ability of a business to raise cash against unpaid invoices. Typically 80 % funding can be obtained however depending on a businesses personal circumstances a higher payment or even a lower prepayment may be available.

Unlike invoice discounting factoring is provided on a disclosed basis which means that your customers are aware you are factoring your invoices. In fact you will add to your invoice a clause asking that payment for the invoice is paid direct to the finance company. Upon receipt the finance company will pay the remaining 20% due to you less their interest charges and fee for running the account.

Factoring can also provide full credit control leaving you free to run your business instead of worrying about chasing your customers for payment. It is important to remember that factoring is a value added product and is not just about providing a cash flow facility. What is the use of having the cheapest funder in town if at the end of the day they are hopeless at collecting your unpaid invoices. This is where a good independent factoring broker can add value to the decision of choosing the right funder

There  are many criteria that you should consider when choosing the correct factoring company for your business. If you are a new start business there are finance companies that are geared up specifically for this purpose. Also your geographic location should have a significant bearing on your decision as some of the smaller independent that can provide a n excellent service but  are very much locally based. also the nature of your business and the type and quality of your debtor book will also have a bearing on your final choice of factoring company.

There are plenty of companies to choose from and as such a good impartial view point will have alot of time and potential future heartache!

Following the traditional quiet  period over Christmas many businesses may find themselves short of cash over the next few months. The good news is that it maybe possible to release cash against unpaid invoices using debt factoring or invoice discounting.

Factoring is available for just about any type of business that provides goods or services on credit terms. Factoring is available for new start businesses, businesses that have had trading difficulties as well as any blue chip companies. This kind of debtor finance is very useful for businesses that have maybe approached their own bank but for one reason or another haven’t been able to obtain funding.

Invoice discounting is traditionally provided in a confidential facility and as such your business has to be stronger and more established to be eligible. Again invoice discounting can release cash against unpaid invoices and provides a very useful working capital facility.

Both factoring and invoice discounting are provided by banks and independent lenders. In our opinion independent lenders are far better at providing factoring because credit control that is provided with factoring is a very important aspect of the service. Independents that specialise in factoring tend to provide a much more comprehensive service and as such the cheaper banks isn’t always the best option

Most factoring companies provide a 90 day factoring service however with some providers it is possible to get close to 120 days without any additional charges.

With most finance companies the clock starts ticking on the day you submit the invoice, however with one or two providers the clock starts kicking at the end of the month.

Therefore if you submit an invoice say on the second of the month the 90 days don’t start until the end of that month.

For many businesses this additional working capital as customers seem to be taking longer and longer to pay. If you are factoring with a company that starts the 90 days the day you submit your invoice you potentially will pay more charges and have a reduced funding line. As soon as you hit 90 days and if your customer hasn’t paid then the value of that invoice will be deducted from your available allowance restricting available cash. In addition if there isn’t enough of an available allowance you will go over your agreed prepayment possibly triggering expensive charges for over payments.

Indeed it has been recently suggested that certain finance companies hold back cheques and don’t pay them to their clients account until a day or so after invoices become disallowed after 90 days therefore triggering charges.

Surely not. The fact of the matter is that customers should be paying within the 90 days and a good factoring company should be collecting debt in the necessary time scale. Unfortunately this doesn’t always happen and as such a few extra days funding can make a big difference.

A good factoring broker will be able to add value and select the most appropriate finance company for your particular requirements.